That is how the question is posed, but I want to analyze the data from a slightly different angle. What are the marginal benefits of the new machine over the old one? I suspect not particularly great. What happens to the old machine? I have no idea, but the answer to this question is of great interest to me. I have said before that in a world with intellectual property monopolies, the optimal rate of innovation[1] is not (not necessarily, at least) a simple maximization of innovation. IP regimes prevent the spread of the innovation through monopoly (legally sanctioned) pricing schemes. If the old machines are not re-used somewhere else, then the benefits of that technological innovation do not spread. Prices stay high; those who can afford it garner the benefits of the new machines. Those who cannot stay outside the innovation loop. Thus, by creating less incentive to constantly upgrade, prices drop as the capital expenditures are covered. Yes, provider profits will drop under this scenario.

Note, this is not necessarily true. It is a plausible theoretical possibility. There are a lot of margins moving in different directions that need to be measured before anything could be said definitively. My point is that the comparisons between level of technology used do not have a clear linear relationship with health care benefits for the communities involved.

Pittsburgh has more MRI Machines than Canada

There is an interesting article at Forbes describing that the housing boom is not the only bubble that may need to burst. Scans per thousand insured people went from 85 to 234 in the U.S. between 1999 and 2007. Author David Whelan describes what happened to one radiologist in Connecticut after Medicare and HMOs cut scan reimbursement rates this year:

Radiologist David Gruen used to spend millions of dollars to replace his General Electric MRI and CT scanners every three years. It was money well spent because the machines were always busy. But a year ago Medicare cut the price it pays for imaging, so Gruen gets paid 15% to 50% less for each order, depending on the type of scan. Health insurers got wise, too, and started imposing a 48-hour review on imaging orders. The doctor hired clerks to battle the HMOs, but his office volume was flat last year, down from 10% growth in prior years. Gruen was forced to take a 20% salary cut. Now his Norwalk, Conn. practice is holding off on buying new machines and stretching the old machines’ life span to five years. “We really do face a crisis,” he says.

In additional, General Electric’s (disclaimer: my former employer) medical division has seen declining profits for the first time in years.

Are Medicare and HMO cuts to imaging hurting patients? The New England Journal of Medicine thinks not. There are side-effects to these scans including increased levels of radiation exposure, especially dangerous for kids. As with any test, there is the probability of a false positive (i.e., that patient does not have the disease, but the test claims they do). “A study from the National Institutes of Health found that 17% of patients getting tested for cancer had at least one false positive chest X ray over a four-year period, and 8% of women had at least one false positive ultrasound for ovarian cancer.” These figures lend some more evidence that Americans may be Overtreated (see my post on Shannon Brownlee’s book of the same name).

Forbes also finds that “a doctor who owns his own machine is four times as likely to order a scan as a doctor who doesn’t.” Financial incentives do make a difference (for more information on how physician financial incentive affect surgery rates, see my working paper “Operating on Commission“).

Footnotes:

1. determined by the choice of social welfare function [↩]